Poor advice results in £6.4 billion loss for UK enterprises

Direct Line for Business shows the importance of professional indemnity cover as one in six small businesses lose money due to poor professional advice.

Poor professional advice from third parties or consultants has resulted in 320,000 enterprises losing money

Estimated average loss of £20,842 to Britain’s small and micro businesses because of poor advisers and consultants

The greatest issue has been caused by deficient IT consultancy advice

London, 13 August, 2015 Poor professional advice from third parties or consultants has resulted in one in six (16 per cent) small and micro businesses (the equivalent of around 320,000 enterprises1)
losing money, according to new research2 published by Direct Line for Business.

Professional advisers, such as accountants and property consultants, are warned that they could be pursued for losses incurred as a result of giving substandard advice. The research reveals that advisory consultants and other such firms have cost Britain’s
small and micro businesses an estimated average of £20,842 in the past 12 months due to inadequate professional consultancy, with one in five (19 per cent) claiming to have lost between £50,000 and £100,000. In total this would equate
to a whopping £6.4 billion lost by small and micro businesses as a result of poor advice in the past 12 months.3

IT consultants were identified as the professionals most likely to give damaging advice. Four in ten (44 per cent) businesses whose operations were affected by bad advice blamed their IT consultants. A third (34 per cent) of businesses suggested it was
poor advice on management issues, while 32 per cent claimed incompetent marketing consultancy negatively impacted their business.

Advisory sectors that most negatively impact businesses

Direct Line for Business warns that not only should consultants providing advisory services consider the reputational and financial impact of poor advice to their own company, but also a number of unintended effects on the businesses to which they provide
advice. Nearly half (46 per cent) of affected companies suggested they were forced to lay off staff because of poor professional advice. While 39 per cent were forced to scale back or halt expansion plans, a third (34 per cent) needed to take out a
loan to prop up their business. More than a quarter (28 per cent) highlighted that the survival of their business was put in jeopardy.

How poor professional advice affected small and micro businesses?

1

Forced to lay off employees

46%

2

Forced to scale back or halt expansion plans

30%

3

Forced to take out credit

34%

4

Put business survival in jeopardy

28%

5

Forced to resolve client/customer issues

28%

6

Lost clients

16%

7

Forced to sell company assets

2%

8

Other

1%

Nick Breton, Head of Direct Line for Business said: “Our research clearly highlights the devastating effect poor professional advice can have on small and micro businesses. However the impact on an advisory firm that is facing
litigation can be just as shattering. For those providing advisory services, it is important to recognise that issues can occur and clients could pursue them for compensation”.

“Advisory firms can protect themselves in case an issue does arise from the advice they give by taking out professional indemnity insurance.”

Notes to editors

1 Total estimates based on 2.26m small enterprises in the UK, as recorded by the ONS

2 Research conducted online by Consumer Intelligence among a representative sample of 125 UK SMEs

3 Research conducted by Atomik Research in June 2015 amongst a representative sample of 177 UK small and micro businesses (up to 10 employees).

Professional Indemnity insurance is available from Direct Line for Business and provides covers against Breach of confidentiality, data protection, libel or slander, data protection, defence costs & intellectual property rights.

Direct Line for Business

Launched in 2007 Direct Line for Business provides a range of insurance products for the small business sector direct by phone or on-line.

Direct Line for Business Professional Indemnity insurance is underwritten by HCC.

All other Direct Line insurance policies are underwritten by U K Insurance Limited, Registered office: The Wharf, Neville Street, Leeds LS1 4AZ. Registered in England and Wales No 1179980. U K Insurance Limited is authorised by the Prudential Regulation
Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority.

Direct Line for Business and U K Insurance limited are both part of Direct Line Insurance Group plc.